Global stampede for Zimbabwe's diamonds; exports controversy rages

by Chido Makunike

The Kimberly Process Certification Scheme has yet another meeting this week, in DRCongo capital Kinshasa, to try to get consensus amongst its members about the the issue of the export of Zimbabwe's controversial Marange diamonds. Within and outside the Kimberly Process , there is an amazing amount of global jostling over Zimbabwe's hot new resource.

Kimberly Process Certification Scheme

Western countries are opposed to Zimbabwe receiving KPCS certification to market its diamonds because they say it doesn't yet meet the requirements. Inevitably the pre-diamonds political and diplomatic fight of the West with the Mugabe government, along with their economic isolation of his government feature as well. Australia, the US, UK and Canada are amongst the strongest voices for a ban on the export and marketing of Marange diamonds.

Zimbabwe, however, has the strong support of many other KPCS members. Many of them are wary that Zimbabwe's treatment has more to do with Western antipathy to its government than whether Marange meets KPCS standards. So there is an element of supporting a fellow developing country against what is seen and resented as the heavy-handed attitude of Western countries used to pushing smaller ones around. Many African countries in particular share the Mugabe government's feeling that the Western KPCS members' attitude is informed by their opposition to its appropriation of land from white farmers.There is a sense of Zimbabwe being singled out for particular scrutiny and attention for reasons in addition to and removed from those immediately to do with the cited ones of human rights abuses, smuggling or corruption at Marange.

Also, most of the African countries have diamond mining conditions that are the same or worse than Zimbabwe's and so would not want to be seen to subject a fellow KPCS member to a ban they could just as easily be targeted for if the regulatory spotlight were turned on them.

The KPCS is divided as never before. In March Mathieu Yamba, the current DRCongolese chairman of the certification body said Zimbabwe was free to sell its diamonds, but Western member countries protested and said this was not the case. Increasingly, the politics of the issue are being dominated by this creeping battle for the upper hand between the developed countries that are the main diamond markets, and the developing countries that are the producers. There are times when it appears that issues to do with whether Marange diamonds can be classified as 'conflict diamonds' or not is almost secondary to the other geopolitical issues.

Domestic pressures on diamond revenues

The government of Zimbabwe has made no secret of the fact that it considers the ban efforts by some members of the KPCS as a manifestation of the overall Western pressure on it over political and governance issues, which it rejects as interference in the country's affairs. President Mugabe has vowed to sell Zimbabwe's diamonds 'sanctions or no sanctions,' and there are likely to be no shortage of takers.

The Mugabe government is deeply suspicious of Western motivations and intentions towards Zimbabwe, in regards to diamonds and the KPCS or anything else. On a visit to India in October 2010 mines minister Obert Mpofu said, “The biggest beneficiaries of our diamonds are in the western world. They looted our resources and because they have stocks and stocks of diamonds from Zimbabwe they want to diminish those before they allow us to sell ours.”

From these statements it is therefore not difficult to understand why the Mugabe government is determined to defy the Western countries to sell the country's diamonds outside the KPCS if forced to.

There is also the pressure in Zimbabwe of the increasingly loud outcry about the opacity with which the nascent diamond industry is run. A regulatory law is yet to passed, and there is reported to be a free-for-all in the mining of Marange diamonds. There are rumours of intersecting un-official syndicates involved in illegal mining and under-the-table sale and exports. Senior government officials and soldiers are said to be in on the diamond rush.

Much confusion surrounds the 'official' mining of diamonds as well. The minister of finance says he has no idea how much has been raised from several non-public diamond auctions held since October 2010. He has previously been in a public war of words with the minister of mines about whether all the proceeds from previously public diamond auctions have been remitted to the treasury or not.

All this confusion only fuels suspicions amongst ordinary Zimbabweans that they are being lied to by most or all the officials involved about the real state of affairs in the diamond sector. Civil servants are putting pressure on the government to increase their low salaries with proceeds from diamond sales, and many other sectors of a revenue-poor country just emerging from 10 years of economic recession also expect to see the benefits of the new national resource.

India

India's diamond processing industry has expressed great excitement about the possibility of a regular supply of diamonds from Zimbabwe. Mpofu the mines minister was reportedly mobbed by excited crowds on his 2010 visit to India's processing center in Surat. The chairman of the consortium in charge of sourcing diamonds for the city's manufactures is said to have requested from Zimbabwe ''the supply of rough diamonds, on a regular monthly basis, to the tune of $100 million, which will be on an annual basis of $1.2 billion.''

To help secure a regular supplier in the midst of strong competition for the Marange diamonds from China and other players, the Indian diamond industry has offered the sweetener of training Zimbabweans in diamond cutting and polishing.

India, the biggest buyer of Zimbabwe's diamonds, would not want to be seen to be going against the KPCS. It's conflicted position has been shown by its mixed signals. It's diamond industry has vowed not to go against KPCS decisions but at the same time has urged that a resolution be quickly found that allows Zimbabwe's KPCS certification.

In the meantime there are reports of Marange diamonds finding their way to India clandestinely anyway. In April Indian authorities arrested two men with about 10kg of Marange rough diamonds reportedly worth $2 million, on their way to Surat. In 2008 two other men were arrested with $1 million worth of Marange diamonds. These are probably minor quantities of what is smuggled out of Marange by traders from all over.

U.S. and Europe

The US and several European countries imposed what they call 'targeted sanctions' on select individuals and corporate entities in Zimbabwe long before the discovery of diamonds at Marange. But amongst those affected from doing business with US companies, for instance, are key players in Zimbabwe's system of mineral marketing, including the Zimbabwe Mining Development Corporation. A Zimbabwean mining official complained that because of the complicated global system of diamond payments, these sanctions had prevented the country from receiving some payments owed it for its diamonds.

Some US and European banks involved in financing the diamond trade have said they would not get involved in deals involving stones from Marange. Netherlands bank ABN Amro said 'reputational issues' were its reasons and its stance would remain until Zimbabwe was officially removed from US and EU sanctions. ''We are not willing to even finance roundabout transactions in South African rands or Hong Kong dollars, because this isn't good for the transparency of the industry,' said the chairman of ADB, the Antwerp Diamond Bank.

Zim mines minister Mpofu responded that in turn Zimbabwe would refuse to do business with these banks' clients in the marketing of its diamonds. Given the estimates of the size of Zimbabwe's diamond deposits (capacity to supply 20% of the global market) and the influence it will increasingly have on the global diamond market, this was not a threat to be taken lightly.

For now at least, the poor relations of the US and Europe with the Mugabe government have put them at a distinct disadvantage in regards to Zimbabwe's diamonds, whether in terms of access to investment opportunities, or influence over Zimbabwe in the KPCS.

Zimbabwe has even done some muscle-flexing of its own in the KPCS. The US had expressed interest in the vice chairmanship of the body, an appointment done by member consensus. The Mugabe government found it had a rare opportunity to get back at a government it believes to be responsible for many of its problems by hounding it unfairly, such as by the US sanctions.

According to a Zimbabwean paper, Newsday, ''Zimbabwe reportedly mobilized other diamond-producing countries, including Namibia and South Africa, to deny the US the strategic post. When queried, mines minister Obert Mpofu said said decisions in the KPCS were reached by consensus, which means that Zimbabwe alone could not have blocked the US from becoming vice-chair."

But he said pointedly, "We have nothing against any participant, but that participant should not be in a position to block other members.''

It may be a relatively minor 'victory,' but it is symbolic of the unexpected new bargaining power a once US/EU-embattled Mugabe government now finds itself able to wield because of the country's dramatic diamond find.

China

China is the foreign player in the leading, most favored position in regards to Zimbabwe's diamond sector, controversially involved right at the extraction level. Two Chinese companies are in joint ventures with Zimbabwean entities in mining their allocated concessions at Marange. Because of China's support for the Mugabe government internationally/diplomatically, economically and financially during the latter's ten year spar with the Western world, it has not been difficult for China to leverage the influence that this has bought it in Harare into having preferential access to Zimbabwe's emerging diamond sector.

Not all Zimbabweans are happy about the heavy reliance on China that their government seems quite content with. There is a widespread feeling that the mushrooming number of China-Zimbabwe business deals are on terms overwhelmingly in favor of China, and to the long-term disadvantage of Zimbabwe. While this may be true, an embattled government largely cut off from Western finance may feel that this is the price that has to be paid to to get much-needed investment not only to develop the diamond sector, but others as well.

Among the most controversial are deals in which China advances funds in one form or another,with the payment to come from future diamond/minerals or agricultural earnings. Whatever the many questions,doubts and fears about the wisdom or benefits of these sorts of arrangements about which very little detail is known, they are likely to remain in place and likely even to increase in number. Although the government spouts a very strong rhetoric of locals having majority shareholding, this is a rule that seems to be in abeyance for Chinese investors, in issue that is guaranteed to develop into a political problem in future when Zimbabwe is not as hard-pressed and desperate for investment, finance and friends.

Russia

Russia has never previously shown much interest in Zimbabwean investment, although governmental relations have been cordial. Along with China and many other non-Western countries, the Mugabe government could count on the support of Russia at international fora when under attack from Britain, the US and the EU.

However, the Marange diamonds seem to have also stirred the interest of Russia, with that country's ambassador in Harare saying Russia’s state diamond group, Gokhran, will be investing in Zimbabwe.

India has expressed concern that because China and Russia would be investing at the primary, mining level, this could jeopardize their own access to Marange diamonds, forcing them to buy them 'second-hand' instead of direct. This is yet another sign of the position of influence in which Zimbabwe has found itself in with regards to diamonds. If the country were not so desperate for quick cash, it would be well-advised to set up at least rudimentary value-addition facilities first, instead of selling rough diamonds to the many countries in a mad scramble for them.

What is the likely outcome of the KPCS meeting in Kinshasa in regards to allowing Zimbabwe to legally export its diamonds? The answer is that it doesn't matter too much any more what the KPCS position is. Australia has warned that the discord over Zimbabwe calls into question the very legitimacy of the KPCS. But greed and profits will win out over any issues of principle.

Whatever the wording of the KPCS position, in this rare, fascinating case, the KPCS has been preempted by a combination of political and market imperatives. The controversy over issues like the treatment of the displaced, increasingly overlooked people of Marange will likely remain on the agenda of some activist groups. But it seems a foregone conclusion that at this week's meeting or some time soon after, Zimbabwe's Marange diamonds will be certified for export. For better or for worse, the peculiarities of this particular diamond scramble are that the KPCS has lost the battle. What that means for the future of the scheme remains to be seen.

Zimbabwe has thrust itself onto the global diamond playing field with a bang, and it seems ready to use its advantages to play hardball.

The Zimbabwe Review
http://www.thezimreview.com/